Apr. 22--In a move that has become familiar in the struggling bank industry, National Penn Bancshares on Tuesday slashed its quarterly dividend by 70 percent, opting to keep that money in case the economy further deteriorates and loan losses continue to rise.

The announcement of a 5 cents per share dividend -- down from 17 cents last quarter -- came at the Boyertown company's annual shareholders meeting in Fogelsville. The reduced dividend will save the company nearly $40 million annually.

Glenn Moyer, the bank's president and chief executive officer, said even though there are some encouraging signs about the economy, the effects of the recession will drag into 2010 and the company has to remain cautious.

"At the heart of the issue are the increases that continue in the unemployment rate both nationally and regionally," Moyer said. "Until this rate finds a top and begins to improve in this region, we, and many other community banking companies will continue to see earnings and capital remain under pressure."

National Penn became the Lehigh Valley's second-largest bank last year when it purchased KNBT. It has 39 offices and nearly $1.6 billion in deposits in Lehigh and Northampton counties, which represents more than 15 percent of the local deposit base. Overall, the company has $9.4 billion in assets and 127 offices.

It is the latest bank to slash dividends paid out to shareholders in order to save cash in the face of economic uncertainty. Cutting dividends to save money leaves the banks in a stronger position to deal with higher levels of bad debt as more consumer and business loans default.

Adding to the woes of banks is that many of those loans are backed by real estate, which also has dropped in value and is difficult to sell.

Among other banks operating in the Lehigh Valley to slash quarterly dividends are Wells Fargo, which owns the Valley's largest bank in Wachovia, Lafayette Ambassador Bank parent Fulton Financial, and PNC Financial Services Group.

Bucking the trend is Harleysville Savings Bank, which maintained its second-quarter dividend at 18 cents a share.

National Penn is scheduled to report first-quarter results next week. It reported a fourth-quarter loss of $35.8 million due mostly to investment and loan losses.

On Tuesday, company executives faced a lively crowd of shareholders who questioned their decision to take government money and how an employee defrauded the bank out of $4.5 million last year.

National Penn in December received $150 million from the Treasury Department, which some shareholders questioned because it must be paid back with interest and gives the federal government a say in how the bank is managed.

Moyer defended the decision and gave no timeline for returning the money, saying it is helping the company make loans and maintain adequate levels of capital.

Moyer said the company expects to recoup the employee fraud loss through an insurance plan, and he said the managers in the best positions to detect the theft have faced professional consequences.

spencer.soper@mcall.com

610-820-6694

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